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Doe Run Peru: The Chronicle of a Death Foretold?

Published by MAC on 2009-06-08 Source: Reuters, (2009-06-02)

Although the notorious La Oroya smelter in Peru has been closed down by its owners, Doe Run, it's still not clear whether the company will meet its obligations to clean up the plant before a government-imposed October deadline.

LIMA - Doe Run Peru, the country's fourth largest metals exporter, said on Tuesday it will halt all operations at its sprawling La Oroya smelter on Wednesday because financial and environmental setbacks have prevented it from buying concentrates.

The plant, hobbled by financial woes since March, processes lead, zinc and copper. Its work permits could be canceled if it does not meet an October deadline for an environmental cleanup. "Starting June 3, 100 percent of operations at the La Oroya metallurgical facility will be temporarily stopped," Doe Run Peru said in a statement.

Earlier on Tuesday, a company source had told Reuters work at the smelter was already stopped. "Yes, we have halted everything. Today, lead stopped and on Friday, zinc and copper," the source said. "There are no concentrates. No one wants to sell to us."

Smelter operations have been on and off since banks cut credit lines over worries about falling metals prices. Without credit, the company could not consistently buy concentrates.

In April, a group of Peruvian miners that sells supplies to Doe Run Peru agreed to give it a $175 million credit line, if its parent company, U.S.-based Renco Group, met two conditions.

The stipulations were that Renco had to fill a $156 million financial shortfall in its Peruvian unit and pledge its shares to the government as a way of promising it would complete an environmental cleanup project.

But so far Renco has not turned over its shares.

Peru's mining ministry has ruled out giving the company more time and Doe Run Peru has said completing the mandatory cleanup before the October deadline would be "difficult."

In its Tuesday statement, the company said it was committed to reaching deals with both its suppliers and the government, but that any final solution would need to be "flexible" with respect to the cleanup deadline.

Peruvian suppliers are waiting to sell to Doe Run Peru until the government and the company reach an agreement on the cleanup issue, the source said.

JOBS IN JEOPARDY

Unions have pressured President Alan Garcia to make sure the plant starts up again as it generates some 3,500 direct jobs and 16,000 indirect jobs.

On Tuesday, Luis Castillo, head of Peru's largest federation of mine workers, said he hoped the government clarifies its position soon on whether it will grant Doe Run Peru more time to complete the cleanup.

La Oroya, located about 108 miles (174 km) east of Lima, Peru's capital, frequently ranks among the world's top 10 most polluted sites. "We are concerned for the security of jobs, for thousands of workers," said Castillo.

Nationally, the federation says some 9,750 mine workers have lost their jobs since November, as the global economic slowdown has slammed prices for most metals, the backbone of Peru's economy.

Doe Run Peru shut all its smelter operations after failing to reach an agreement with banks and mining suppliers, a union official said today.

The company, a unit of New York Renco Group Inc., is unable to pay its 3,700 workers and has no cash for metal supplies for its La Oroya zinc and lead smelter, Mining Federation General Secretary Luis Castillo said today. "The smelter is closed," Castillo said by phone from Lima. "The company and the government don't want to solve this problem, which will cost workers their jobs."

The smelter was operating at 30 percent of capacity until last week. Banks froze Doe Run's accounts on Feb. 24 after metal prices collapsed. Doe Run says it needs more time to settle its debts and invest in an environmental cleanup, which has cost the company $300 million since it took over a smelter in Peru in 1997.

Doe Run Resources Inc.'s Chief Executive Officer Bruce Neil and Doe Run Peru's president Juan Carlos Huyhua will meet with government and mining company officials in a bid to wrap up a $175 million bailout this week, said Vladimir Huaroc, president of the Junin region, where the smelter is located. Both companies are units of Renco Group Inc.

‘Make or Break'

"This is a make-or-break week as the situation is unsustainable," Huaroc said in a telephone interview. "There has to be a government decision as right now we're trapped in a blind alley." The government may operate the smelter as a last resort to prevent workers and 16,000 miners in the central Andes who supply the smelter from losing their jobs, he said.

Zinc and lead have both fallen in London by at least a third since March 2008. Peru is the world's third-largest zinc producer and fourth-biggest for lead.

Doe Run's La Oroya smelter, 140 kilometers (87 miles) east of Lima, last year refined 114,259 metric tons of lead; 43,440 tons of zinc; 53,831 tons of copper and 1.1 million kilograms of silver, according to the Energy & Mines Ministry.

Doe Run, which posted $1.45 billion in sales in 2007, buys $1 billion of concentrates a year, according to its Web site. The shutdown of most of its operations forced about 30 mining companies in the Peruvian central highlands, the country's main zinc and lead-producing region, to seek other buyers.